Excel Corporation and Subsidiary
(A Development Stage Company)
Notes to the Unaudited Consolidated Financial Statements
September 30, 2012
| 1. | ORGANIZATION AND OPERATIONS |
Excel Corporation (the “Company”) was organized November 13, 2010 as a Delaware corporation. The Company owns 100% of the common stock of XL Fashions, Inc. (subsidiary). The Company is considered a development stage company as defined by FASB ASC 915-205-45-6. The Company is currently devoting substantially all of its efforts in acquiring, developing and licensing brands in a broad range of product categories. The Company also intends to acquire, develop and license select brands where the brand name can be leveraged into new categories. The Company’s objective is to develop a diversified portfolio of iconic consumer brands by issuing licenses and then organically growing the existing portfolio, licensing new brands and entering into joint ventures or other partnerships with the goal of leveraging the experience of management in the license of branded merchandise.
Based upon the experience of our management, we expect that our licenses will typically require our licensees to pay us royalties based upon net sales with guaranteed minimum royalties in the event that net sales do not reach specified targets. We further expect that any licenses we issue will require licensees to pay us certain minimum amounts for the advertising and marketing of the respective license brands.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Date of Management’s Review of Subsequent Events
The Company has evaluated subsequent events through the filing date of this report and determined that there were no recognized or non-recognized subsequent events to report.
Basis of Consolidation
The accounting and reporting policies of the Company conform with U.S. generally accepted accounting principles (“GAAP”). The consolidated financial statements of the Company include the accounts of Excel Corporation and its subsidiary, XL Fashions, Inc. All intercompany accounts and transactions have been eliminated in consolidation.
Accounting Method
The Company’s financial statements are prepared on the accrual method of accounting.
Revenue Recognition
The Company’s revenue will consist of fees from licenses issued. Revenues will include royalties and brand fund contributions which will be based on a percent of sales and an initial license fee. Royalties, license fees and brand fund contributions will be recognized in the period earned.
Excel Corporation and Subsidiary
(A Development Stage Company)
Notes to the Unaudited Consolidated Financial Statements
September 30, 2012
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Cash and Cash Equivalents
For purposes of reporting the statement of cash flows, the Company includes all cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less as cash and cash equivalents. The carrying amount of financial instruments included in cash and cash equivalents approximates fair value because of the short maturities for the instruments held.
Income Taxes
Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to tax net operating loss carryforwards.
The deferred tax assets and liabilities represent the future tax return consequences of these differences, which will either be taxable or deductible when assets and liabilities are recovered or settled, as well as operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established against deferred tax assets when in the judgment of management, it is more likely than not that such deferred tax assets will not become available. Because the judgment about the level of future taxable income is dependent to a great extent on matters that may, at least in part, be beyond the Company’s control, it is at least reasonably possible that management’s judgment about the need for a valuation allowance for deferred taxes could change in the near term.
Loss Per Share
Basic net loss per share is computed by dividing net loss available for common stock by the weighted average number of common shares outstanding during the period.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Excel Corporation and Subsidiary
(A Development Stage Company)
Notes to the Unaudited Consolidated Financial Statements
September 30, 2012
| 3. | RECENT ACCOUNTING PRONOUNCEMENTS |
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles – Goodwill and Other (Topic 350) – Testing Goodwill for Impairment (ASU 2011-08), to simplify how entities test goodwill for impairment. ASU 2011-08 allows entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If a greater than 50 percent likelihood exists that the fair value is less than the carrying amount then a two-step impairment test as described in Topic 350 must be performed. The guidance provided by this update becomes effective for annual and interim impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this standard is not expected to have a material impact on the Company’s financial position and results of operations.
| 4. | FAIR VALUE MEASUREMENTS |
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
ASC Topic No. 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as described below:
Level 1: Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets, quoted prices in markets that are not considered to be active, and observable inputs other than quoted prices such as interest rates.
Level 3: Level 3 inputs are unobservable inputs.
The following required disclosure of the estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The methods and assumptions used to estimate the fair values of each class of financial instruments are as follows:
Cash and Cash Equivalents, Accounts Payable, and Corporate Tax Payable
The items are generally short-term in nature, and accordingly, the carrying amounts reported in the consolidated statements of financial condition are reasonable approximations of their fair values.
Excel Corporation and Subsidiary
(A Development Stage Company)
Notes to the Unaudited Consolidated Financial Statements
September 30, 2012
| 4. | FAIR VALUE MEASUREMENT (Continued) |
Note Receivable
The carrying amount approximates the fair value.
License Agreements and Note Payable
The carrying amounts approximate the fair value.
The Company accounts for income taxes in accordance with FASB Accounting Standards Codification Topic 740-10 which requires the Company to provide a net deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carryforwards. At September 30, 2012, the Company has available unused operating loss carryforwards of approximately $67,000 which may be applied against future taxable income which expires in various years between 2025 and 2026.
The amount of and ultimate realization of the benefits from the operating loss carryforwards for income tax purposes is dependent, in part upon the tax laws in effect, the future earnings of the Company, and other future events, the effects of which cannot be determined because of the uncertainty surrounding the realization of the loss carryforwards. The Company has established a valuation allowance equal to the effect of the loss carryforwards and, therefore, no deferred tax asset has been recognized for the loss carryforwards.
At September 30, 2012, the Company had 200,000,000 shares of common stock authorized par value $.0001 and 10,000,000 shares of preferred stock authorized par value $.0001.
Under the Company's stock option plan, the Company may grant incentive and non statutory options to employees, non employee members of the Board and consultants and other independent advisors who provide services to the Corporation. The maximum shares of common stock which may be issued over the term of the plan shall not exceed 4,000,000 shares. Awards under this plan are made by the Board of Directors or a committee of the Board. Options under the plan are to be issued at the market price of the stock on the day of the grant except to those issued to 10% or more stockholders which shall be issued at 110% of the fair market value on the day of the grant. Each option exercisable at such time or times, during such period and for such numbers of shares shall be determined by the Plan
Excel Corporation and Subsidiary
(A Development Stage Company)
Notes to the Unaudited Consolidated Financial Statements
September 30, 2012
| 7. | STOCK OPTIONS (Continued) |
Administrator. However, no option shall have a term in excess of 10 years from the date of the grant. As of September 30, 2012, no options have been issued.
Loss per share is based on the weighted average number of common shares. Dilutive loss per share was not presented as of September 30, 2012 because it would have had an anti-dilutive effect on earnings.
The following is a reconciliation of the numerators and denominators of the basic per share calculation for the nine months ended September 30, 2012 and for the period November 13, 2010 (date of inception) through September 30, 2012.
| | Nine Months Ended September 30, 2012 | | | November 13, 2010 (date of inception) through September 30, 2012 | |
Loss from continuing operations available to common stockholders | | | (156,722 | ) | | | (223,763 | ) |
| | | | | | | | |
Weighted average number of common shares outstanding used in earnings per share during the period | | | (30,848,582 | ) | | | (31,573,745 | ) |
Loss per common share | | | (.00508 | ) | | | (.00709 | ) |
Stand up to Cancer Agreement
On September 2, 2011, Excel Corporation, the “Licensee”, entered into a License Agreement with the Entertainment Industry Foundation, the “Licensor”, in which the Licensor granted the Licensee the exclusive right to manufacture, advertise, and distribute licensed products in a Territory as defined in the License Agreement. The term of the License Agreement commences on the effective date “September 2, 2011 and expires on December 31, 2014.
Excel Corporation
(A Development Stage Company)
Notes to the Unaudited Consolidated Financial Statements
September 30, 2012
| 9. | LICENSING AGREEMENTS (Continued) |
The Agreement calls for the Licensee to pay the Licensor royalties based on six percent (6%) of net sales as defined in the Agreement. The Licensee was required and paid a “Guaranteed Minimum Royalty and Advance” of $50,000 upon execution of the agreement (September 2, 2011). Another $50,000 advance is due August 1, 2012. These Royalty deposits will be applied against royalties to be paid to the Licensor.
Provided that the Licensee is not in default of the Agreement, an additional two year renewal option is available with the same term and conditions which calls for an additional Guaranteed Minimum Royalty amount of $250,000 to be paid during the first year of the renewal term ending December 31, 2015.
Master License Agreement (Michael Vick)
On June 9, 2011, Excel Corporation “the Licensee” entered into a Master License Agreement with Michael Vick, “the Licensor”, which grants the Licensee an exclusive twenty-five year license to use the name and mark, referred to as the “Marks” pursuant to the “Master License” throughout the world. The license granted under the agreement is royalty free, provided that the Licensor is reimbursed for funds expended in registering, securing, acquiring, maintaining, or protecting the Mark.
In addition, the Licensor retains the absolute right to approve the design, content, packaging, and all other product characteristics utilized in the licensed Mark.
Sales Agreement (Billy Martin)
On October 21, 2011, Excel Corporation entered into an Agreement of Sale with Real American Capital Corp to purchase the assets of the business known as “Billy Martin’s”, collectively the “Assets”. The assets include the following:
| 1. | All rights, title and interest in and under the trademarks including all claims associated with the license, the “Trademarks”. |
| 2. | The right, title and interest of the Seller in the name of Billy Martin’s, the “Name”. |
| 3. | Any goodwill associated with the trademark, the “Goodwill”. |
| 4. | Any furniture, furnishings, fixtures, “fixtures and equipment”, as defined in the agreement. |
The purchase price for the assets above is $150,000 due as follows:
| 1. | $30,000 due at closing, October 24, 2011. – (Paid) |
| 2. | An additional $120,000 at closing (October 24, 2011) by the execution of a Promissory Note by the Purchaser to the seller. This note calls for $30,000 payments at zero percent interest (0%) commencing October 17, 2012, and continuing on the 17th of October of each succeeding year, until Note is paid. |
Excel Corporation
(A Development Stage Company)
Notes to the Unaudited Consolidated Financial Statements
September 30, 2012
| 9. | LICENSING AGREEMENTS (Continued) |
Representation Agreement (Soupman Inc.)
On February 4, 2012, Excel Corporation entered into an Agreement with Soupman, Inc. (Principal). Pursuant to the agreement, the Principal has designated Excel as the exclusive licensing agent in the Territory, as defined in the Agreement. As licensing agent, Excel Corp will negotiate and service licensing agreements on behalf of the Principal.
As compensation, Excel will receive 25% of all licensing revenue from agreements executed pursuant to the terms of the Representation Agreement and five percent (5%) of other licensing revenue as defined in the Agreement. All payments from License Agreements are made payable to the Principal and after such payment, the Agent (Excel Corp) will be paid the commission as indicated above.
The initial term of the Agreement is for one year and automatically renews provided that the Agent has submitted to the Principal a minimum of five potential license applications. Subsequent to the second year, the Agreement will terminate unless extended by written agreement.
Licensing Agreement (Camuto Consulting)
On February 21, 2012, Excel Corporation entered into an Agreement with Camuto Consulting, Inc. (the “Company”), in which the Company engaged Excel Corp as the Licensing Agent to identify and secure licenses as applicable. The Agreement is for a one year term and expires February 28, 2013.
Compensation to the Licensing Agent pursuant to the agreement is as follows:
| 1) | Commissions payable at six and a half (6.5%) on Royalties earned and received by the Company during the first term of solicited agreements with eligible Licensees that are executed. |
| 2) | Commissions payable at five (5%) on Royalties earned and received by the Company during any renewal term of solicited agreements with eligible Licensees that are executed. |
Licensing Agreement (Benedetto Arts, LLC)
On May 3, 2012 Excel Corporation entered into an Agreement with Bendetto Arts, LLC (“BA”), in which BA will utilize Excel Corp as an independent contractor for the solicitation of licensing opportunities. As compensation for its services, Excel will receive a commission based on 20% of Gross Revenue as defined in the Agreement.
The term of the Agreement is for one year commencing on May 3, 2012 with an option to extend if both parties agree. In addition, if Excel Corp does not deliver three business opportunities from the May 3, 2012 date, BA has the right to terminate the Agreement.
Excel Corporation
(A Development Stage Company)
Notes to the Unaudited Consolidated Financial Statements
September 30, 2012
9. LICENSING AGREEMENTS (Continued)
Representation Agreement-Life Guard
On January 2, 2012, Excel Corporation entered into an Agreement with Lifeguard Licensing Corp, (“the Principal) in which the Principal owns rights to trademarks, packaging, designs, images, copyrights and other intellectual property referred to as the “ Property”. The Principal, pursuant to the Agreement designated Excel Corp as the Licensing Agent to negotiate and service license agreements with respect to commercial exploitation of the Property within the Territory as defined in the Agreement.
The term of the Agreement is for one year commencing on the effective date (January 2, 2012). The Principal may terminate the Agreement upon written notice if the agent does not meet certain terms as defined in the agreement. The Agents compensation will be calculated at 25%,20% and 15% of Net Revenues for the initial term, second renewal term, and third renewal term respectively. In addition to the Agent’s Compensation the Principal will reimburse the Agent for out of pocket expenses.
Representation Agreement-Hickory Farms
On March 12, 2012, Excel Corporation entered into an Agreement with Hickory Farms, Inc. (“the Principal) in which the Principal owns rights to trademarks, packaging, designs, images, copyrights and other intellectual property referred to as the “ Property”. The Principal, has designated Excel Corp as the Licensing Agent to negotiate and service license agreements only, with respect to commercial exploitation of the Property within the Territory as defined in the Agreement. This excludes any wholesale sales of Hickory Farm product of which the Agent will not receive any commissions.
The term of the Agreement is for one year commencing on the effective date (March 12, 2012). The Principal may terminate the Agreement upon written notice if the agent does not meet certain terms as defined in the agreement. The Agents compensation will be calculated at 25%, 15% and 10% of Net Revenues for the initial term, first renewal term, and second renewal term respectively. In addition to the Agent’s Compensation the Principal will reimburse the Agent for out of pocket expenses.
10. LOAN ASSIGNMENT AGREEMENT
On June 25, 2012 the Company (XL Fashions Inc.) entered into a Loan Assignment Agreement with Seacoast Holdings (Efashion Inc.) Pursuant to the Agreement Seacoast Holdings will acquire the Loan, Warrant and related rights from XL Fashions Inc. for $925,000 which the Company originally acquired from Orix pursuant to an Assignment Agreement dated January 23, 2012.
The purchase price paid by E Fashions for the Loan, Warrant and related rights on June 27, 2012 was $925,000.
Excel Corporation
(A Development Stage Company)
Notes to the Unaudited Consolidated Financial Statements
September 30, 2012
11. MINORITY INTEREST
Minority interest consists of the stockholders who hold the preferred stock of XL Fashions, Inc.
12. NOTE RECEIVABLE
On August 1, 2012 Excel Corporation entered into a Secured Promissory Note with Shoutomatic LLC (the Maker) in which the “Maker” promises to pay Excel Corporation( the Payee) the principal sum of $60,000 at an interest rate of Six percent per annum. The interest will accrue and be paid on the August 1, 2013 (Maturity date). The maker will have the right to prepay without a penalty.
